City & Corporate: In the News ... Interest rate cuts

The banks have found themselves under the media microscope once more,
following their reluctance to pass on the 1.5 per cent interest rate cut
to the public. The Daily Telegraph reported that only three of the 88
major lenders had said they would pass it on to their borrowers but most
had already reduced rates for savers. The majority of banks eventually
relented but were reported at the weekend to have told Chancellor
Alistair Darling 'we are not charities' and that further cuts will not
be passed on.

- The reaction?

In the wake of the recent bailout, the press were angry with the banks'
stance. The Sun railed against 'greedy bank bosses', while The Daily
Telegraph said: 'They're lucky to be alive.' Darling was said to have
thrust unflattering newspaper headlines under bank executives' noses at
a meeting on Friday to make his point.

- Who are the key PR players?

The Council of Mortgage Lenders, the British Banking Association and a
number of individual banks stressed publicly that banks rely on the
Libor rate for margins, not the base rate. Until the Libor rate drops,
they argued, their lending rates cannot. Notably Barclays and HSBC,
which did not take public money, are still resisting calls to lower
rates while Lloyds TSB took quick action.

- What happens next?

The majority of banks relented in the end, but this is just the
beginning. Interest rates are expected to drop further and reports
suggest the banks will refuse to comply next time, creating a further
divide between the part or fully-owned government institutions - under
great pressure to pass on cuts - and those without public stakes that
may fight harder. The banks' public image has probably never been lower
and their PR task will be an uphill struggle.